SCAN. SUPREME COURT : STATE OF NEW YORK COUNTY OF NASSAU PRESENT: HON. IRA B. WARSHAWSKY, Justice. TRIAL/IAS PART 12 SHORT FORM ORDER

Transcription

1 SCAN SHORT FORM ORDER SUPREME COURT : STATE OF NEW YORK COUNTY OF NASSAU PRESENT: HON. IRA B. WARSHAWSKY, Justice. TRIAL/IAS PART 12 In the Matter of the Application of JOHN MARCIANO Petitioner-Plaintiff for a Judgment pursuant to Business Corporation Law 1104-a, dissolving CHAMPION MOTOR GROUP INC., d//a Bentley of Long Island Respondent INDEX NO. : /2006 MOTION DATE: 11/02/2007 MOTION SEQUENCE: 010 ACTION NO. - and - GARY BRUSTEIN, MICHAEL TODD, 115 SOUTH SERVICE ROAD, LLC, BENTLEY LONG ISLAND, LLC GOLD COAST LUXURY AUTO, LLC, BTM GROUP, LLC CHAPION MOTOR SERVICE, INC., CHAMPION AUTO BROKERS, INC. and CHAMPION LEASING GROUP, INC. Additional Respondents-Defendants. JOHN MACIANO, individually and on behalf of 115 SOUTH SERVICE ROAD, LLC - against - Plaintiff INDEX NO. : /2007 MOTION DATE: 11/02/2007 MOTION SEQUENCE: 001 GARY BRUSTEIN, MICHAEL TODD BT 115 REALTY, LLC, 115 SOUTH SERVICE ROAD, LLC, CHAMPION MOTOR GROUP, INC. CHAMPION LEASING GROUP, INC., FORCHELLI CURTO, SCHWARTZ, MINEO, CARLINO & COHN LLP ANTHONY V. CURTO, BARBARA S. ALESI ACTION NO.

2 and BANK OF AMERICA, NA The following papers read on this motion: Defendants. Order to Show Cause, Affirmations, Affidavit & Exhibits Anexed... 1 Affirmation in Opposition to Order to Show Cause of Andrew E. Curo, Esq. Affidavits & Exhibits Anexed Reply Affirmation in Furher Support of Plaintiff s Motion for Provisional Relief (Including Appointment of a Temporar Receiver) of Robert M. Calica, Esq. & Exhibits Anexed Order to Show Cause, Affirmation, Affidavit & Exhibits Anexed... 4 Affirmation in Opposition to Motion for Provisional Relief of Neil J. Moritt, Esq, Affidavits & Exhbits Anexed... Reply Affirmation in Furher Support of Plaintiff s Motion for Provisional Relief (Including Appointment of a Temporar Receiver) of Robert M. Calica, Esq. & Exhibits Anexed Ban of America, N.A. ' s Response to Plaintiff s Request for Appointment of a Temporar Receivership and Position as to the Temporar Restraining Order Granted by the Court Order to show cause in Action-proceeding No. 1 by the petitioner-plaintiff John Marciano for an order inter alia: (1) appointing a temporar receiver of all the income and assets of defendants 115 South Service Road, LLC, Champion Motor Group, Inc., Champion Leasing Group, and/or alternatively, directing the defendants to post an undertakng in an amount no less than $20 milion; (2) enjoining codefedants Gar Brustein, Michael Todd, 115 South Service Road, LLC, Champion Motor Group, Inc. and Champion Leasing Group, Inc ("the Champion Defendants ), from inter alia, engaging in or taking any steps concernng any fuher assignment, sale or other disposition of any of the assets of the Champion Defendants and/or fuher enjoining the defendant from taking any steps or actions other than in the of business; and (3) directing the defendants to "disgorge and restore" all monies and propert which was allegedly diverted from 115 South Service Road, LLC. alia: ordinar course Order to show cause in Action No. 2 by the plaintiff John Marciano for an order inter (1) appointing a temporar receiver of all the income and assets of defendants 115 South Service Road, LLC, Champion Motor Group, Inc., Champion Leasing Group, and/or

3 alternatively, directing the defendants to post an undertaking in an amount no less than $20 milion; (2) enjoining co-defendants Gar Brustein, Michael Todd, 115 South Service Road LLC, Champion Motor Group, Inc. and Champion Leasing Group, Inc ("the Champion Defendants ), from inter alia, fuher assigning, sellng or otherwise disposing of any of the assets of the Champion Defendants and/or fuher enjoining the defendant from taking any steps or actions with respect to the Champion entities other than in the ordinar course of business; and (3) directing the defendants to "disgorge and restore" all monies and propert which was allegedly diverted from 115 South Service Road, LLC. This is the latest installment in a contentiously litigated commercial dispute arising out of the paries' soured, professional relationship and the subsequent ouster of plaintiff John Marciano from involvement in the "Champion" family of high-end automobile dealership entities. Unlike the previous motions, however, the curent applications for inter alia stated injunctive relief and the appointment of a temporar receiver, featue an entirely new, companon action - containing fiduciar duty and debtor-creditor causes of action - in which both opposing counsel and the Bank of America have now been joined as par defendants. In sum, the plaintiff contends that in August of 2007, codefendants Gar Brustein and Michael Todd - with the alleged tortious assistance of their attorneys, Forchell, Curto, Schwarz Mineo, Carlino & Cohn, LLP - concocted a scheme by which they fraudulently, and without Marciano s paricipation, conveyed and then effectively appropriated a valuable dealership lease held by Champion affiliate 115 South Service Road, LLC ("South Service ) (Cmplt., Action No ). Notably, the subject lease contained a $6.5 milion option to purchase the dealership propert, now allegedly valued at more than double the option price (Cmplt. 5; Calica Aff. 5; Defs' Opp., Exh. ). It is undisputed that Marciano curently holds a one-third ownership in South Service. Based upon foregoing, and by essentially identical orders to show cause with temporar restraining orders submitted October, , the plaintiff now moves in both pending actions for stated provisional relief including, among other things, the appointment of a temporar

4 receiver to assume control of South Street, CMG and CLG (the two "dealership" entities); and the issuance of a preliminar injunction precluding the defendants from inter alia wasting assets and/or acting other than in the ordinar course of business. The plaintiffs applications are now before the Cour for review and resolution. The motions should be granted to the extent indicated below. Upon the exercise of its broad discretionar authority in considering provisional remedies (e., Ruiz v. Meloney, 26 AD3d ), the Cour finds that the plaintiff has demonstrated his entitlement to preliminar injunctive relief i. e. he has shown: (1) a likelihood of success on the merits of his newly asserted claims, (2) irreparable injur absent granting of the preliminar injunction, and (3) a balancing of the equities in his favor (Aetna Ins. Co. v. Capasso 75 NY2d 860 (1990); Doe v. Axelrod 73 NY2d 748 (1988); EdCia Corp. v. McCormack AD3d 991; BCL ~~ 1113, 1115). It is settled that "a member of a limited liabilty company, has a fiduciar obligation others in the parnership or limited liabilty company which bars not only blatant self-dealing, but also requires avoidance of situations in which the fiduciar s personal interest might possibly conflct with the interests ofthose to whom the fiduciar owes a duty ofloyalty" (Wiloughby Rehabiltation and Health Care Center, LLC v. Webster, 13 Misc.3d 1230(A),2006 WL at 4 (Supreme Court, Nassau County 2006) see also, Salm v. Feldstein 20 AD3d ; Nathanson v. Nathanson 20 AD3d 403; Out of the Box Promotions LLC v. Koschitzki, 15 Misc.3d 1134(A), 2007 WL at 7 (Supreme Cour, Kings County 2007); Finkelman v. Greenbaum 14 Misc.3d 1217(A), 2007 WL at 4 (Supreme Cour, Nassau County 2007) cj, Tzolis v. Wolf 39 AD3d 138, 146). Here, the plaintiff has submitted evidentiar materials suggesting that in August of2007 defendants Todd and Brustein assigned South Service s lease to a related entity - (BT 115 Realty, LLC ("BT"D - in which they alone are principals for ostensibly less than fair value and under circumstances which fuer suggest that the transaction may have involved self-dealing and/or constituted a breach of the defendants' fiduciar duties. The record establishes in this respect that the recited consideration for the subject assignment - as memorialized in a South Service company resolution adopted by solely Todd

5 and Brustein - was: (1) a de minimis up-front cash payment of only $ ; (2) coupled with a vague, unsecured representation that an appraisal would supposedly be conducted at some unspecified date to the determine what additional consideration would be "fair and reasonable (Pltffs Exh. The plaintiff has fuher demonstrated that after the assignment was complete, BT immediately exercised the lease option; acquired the valuable dealership propert for itself; and then obtained a roughly $14 millon mortgage loan from the Ban of America - portions of which, the plaintiff fuher contends, were misappropriated by the defendants Todd and Brustein (Calica Aff., ~ 15(d)-(fJ; Pltffs Exh. J"). Additionally, the plaintiff has raised serious questions relating to what he has described as a fictitious, $6 milion promissory note, executed as par of the same assignment transaction, and made payable by South Service to the dealership entity, Champion Motor Group CMG")(Pltffs Exh. The subject note recites inter alia that it was given to repay monies allegedly advanced by CMG to South Street for building improvements at the dealership site - loans and debts which are puportedly inconsistent with, and entirely unsupported by, the bookkeeping and accounting history pertinent to both involved entities (Calica Aff., ~ 8(c)(iii); Marcus Aff., ~~ 5-8; Marcus Supp Aff. ~~ 3-5). The Court agrees that the defendants' opposing submissions fail to paricularly address the fact-specific claims made by the plaintiffs expert accountant to the effect that the note and recited debt claims are erroneous and/or nonexistent (Moritt Aff. ~ 41, fn 11, at 15). Nor is the Cour persuaded by defendants' attempt to analogize the assignent transaction to a so-called "freeze out" merger, where minority interests may be legally eliminated in very limited circumstaces provided - that fair value is paid and the merger fuhers a legitimate corporate merely eliminating the minority interest purose apar from (Alpert v. 28 Wiliams Street Corp. 63 NY2d 557, 569 (1984) see Loengardv. Santa Fe Industries, Inc., 70 NY2d 262, (1987)). Here, there has been no forced elimination of the minority interest for a prescribed fair value" within the meaning of Alpert - and no merger for that matter. Rather, the plaintiffs

6 claims are essentially based on the far less exotic theory that the defendants simply transferred a company asset to a third par for less than fair value. The fuer claim that an assignment to an entity which excluded the now felonyconvicted plaintiff was necessar to obtain needed institutional financing - even if tre - would not justify a sham asset transfer and the creation of an allegedly bogus promissory note to support the conveyance of additional company assets (Moritt Aff., ~~ 12-14; Classi Aff., ~~ 2-3). However, the plaintiffs request for in effect, a status quo-altering, mandatory injunction compellng the defendants to immediately "disgorge and restore" all allegedly diverted propert is denied, both because the award of monetar relief in a pendente lite context is premature at this juncture (Vilage ofwesthampton Beach v. Cayea 38 AD3d 760, 762), and because " preliminar injunction wil not issue where to do so would grant the movant the ultimate relief' sought (SHS Baisley, LLC v. Res Land, Inc. 18 AD3d 727, 728; St. Paul Fire and Mar. Ins. Co. v. York Claims Serv. 308 AD2d 347, ; MacIntyre v. Metropolitan Life Ins. Co., 221 AD2d 602 see also, Matos v. City of New York, 21 AD3d 936). Accordingly, those branches of the orders to show cause which are for preliminar injunctive relief are granted to the extent that the temporar restrainng order granted upon submission of the plaintiffs applications shall be continued in full force and effect subject to the posting of an undertakng as directed infra (see generally, Buckley v. Ritchie Knop, Inc., 40 AD3d 794, 795; Gerstner v. Katz 38 AD3d 835, 836). Lastly, and in the exercise of its discretion, that Cour declines to appoint a temporar receiver over "all assets and income" ofbt, South Service, CMG and Champion Leasing Group, Inc., or alternatively, to direct the posting of a $20 millon bond. It is settled that receivership is a drastic remedy and that cours wil "exercise extreme caution in appointing receivers pendente lite because such appointment results in the taking and withholding of possession of propert from a par without an adjudication on the merits (see Application of Androtsakis, 139 AD2d ; Modern Collection Associates, Inc. v. Capital Group, 140 AD2d 594; Hahn v. Garay, 54 AD2d see also, In re Application of Chiovitti 280 AD2d see, North Fork Preserve, Inc. v. Kaplan 31 AD3d ; Ronan v. Valley Stream Realty Co. 249 AD2d 288; CPLR 6401 (a); BCL ~ 1202).

7 Considering the totality of the circumstances presented, the Cour is of the view the provisional relief already granted wil suffce to adequately protect the plaintiffs interests Kristensen v. Charleston Square, Inc. 273 AD2d 312). The Cour has considered the paries' remaining contentions and concludes that none warants an award of relief in excess of that granted above. Accordingly, it is ORDERED that the plaintiffs motion for a preliminar injunction is granted to the extent that terms and provisions of the temporar restraining orders previously approved by the Cour shall be continued during the pendency of the subject actions, and it is fuher ORDERED that the plaintiff shall post an undertaking in the sum of $ 500 (cj, 000 pursuant to CPLR 6312(b) within fifteen (15) days of the date of this Order, and if such undertakng is not posted, the motion is denied, and it is fuher ORDERED that the plaintiffs orders to show cause are otherwse denied. The foregoing constitutes the decision and order ofthe Cour. Dated: December 7, 2007 ENTERED DEC 1 4" 2007 NASttAU CONT CLERK' OFe